Question

Metlock Inc. issued $730,000 of 10.40%, 19-year bonds on January 1, 2020, at 103. Interest is payable semi-annually on July 1 and January 1. Metlock Inc. uses the effective interest method of amortization for any bond premium or discount. Assume an effective yield of 10.00%. (With a market rate of 10.00%, the issue price would be slightly higher. For simplicity, ignore this.)

A. Prepare the journal entry to record the issuance of the bonds.

B. Prepare the journal entry to record the payment of interest and the related amortization on July 1, 2020.

C. Prepare the journal entry to record the accrual of interest and the related amortization on December 31, 2020

Answer 1

Date 1. Record the Bond Issue General Journal Debit Credit Jan-01 Cash (730000*1.03) 751900 Premium on Bonds Payable 21900 Bonds Payable 730000 Record the issue of the Bond with Premium Date Record the interest Payment Record the interest Paymnet and amotization General Journal Debit Jun-30 Interest Expenses (751900*10%*6/12) Premium on Bonds Payable Cash (730000*10.40%*6/12)) Record the interest Paymnet and amotization Credit 37595 365 37960 Date Record the interest Expenses Adjustment and amotization General Journal Debit Credit Dec-31 Interest Expenses 37577 Premium on Bonds Payable 383 Interest Payables 37960 Record the Accrues interest and amotization